Shelley Hanna: Use KiwiSaver to top up NZ Super

The drop in income when you stop working can be difficult to adjust to. Photo / Getty Images

Q I am 68 and still working as a teacher. I have over $250,000 in my balanced KiwiSaver fund — I topped it up with a small inheritance from my father and I contribute 10 per cent of my salary plus my NZ Super of $679 per fortnight (I'm taxed at ST). What should I do when I retire at the end of the year? Will I need to close my KiwiSaver or can I keep it going? My husband passed away last year. I used his savings to pay off our mortgage.

A You have done well to build up your KiwiSaver over the years and pay off your mortgage.

You do not have to do anything with your KiwiSaver when you stop working. Your contributions will stop, but your money will still be invested in the fund of your choice. It may be a good idea to review where your money is invested. If you are in good health at the age of 68 you should plan for a 27-year retirement — to age 95. This means that some funds can be invested for the long term.

The drop in income when you stop working can be difficult to adjust to. You can access your KiwiSaver to top up your income from NZ Super.

How much you will need depends on your lifestyle and budgeting skills. The Retirement Calculator on the Sorted retirement savingswebsite will help you work out how long your savings will last.

They estimate that retirees on a "No Frills" budget spend $726 per week in the main centres and $605 per week in the regions. The figures they provide are based on research into the spending patterns of New Zealand retirees by the Westpac Massey Fin-Ed Centre and are dated June 30, 2021.

If you look back at the figures for 2018, "No Frills" was $598 in the main centres and $569 in the regions. There has been a big increase in living costs over the past three years.

Inflation rose sharply to 5.9 per cent in the fourth quarter of 2021 and could rise still higher. High inflation eats away at your purchasing power, so you need more money in the future to cover your basic living costs.

When you are no longer working, your NZ Super will be taxed at M rate, which will give you $462 per week. If you have $280,000 in your KiwiSaver by the end of 2022, according to the Sorted calculator this could give you a weekly income (with NZ Super) of $813 per week to 95.

Will $813 per week be enough to cover home maintenance, health expenses and travel? If you think you will need more, look at earning some money from a hobby, or sharing your home with a boarder (bearing in mind that your NZ Super will be reduced by around $34 per week if you are living with someone).

Get ideas from friends who are already retired or join a Facebook group such as Cheaper Living NZ (this is run by the budgeting service Money Talks).

The more planning you do now the easier it will be for you to transition into the next stage of your life.

• • Shelley Hanna is the communications manager with Peak Portfolio Management Ltd which is a Financial Advice Provider licensed by the Financial Markets Authority. Disclosure information is available at www.peak.net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your KiwiSaver questions to shelley.hanna@peak.net.nz